Read on Twitter
We're currently experiencing the most significant financial asset bubble in modern history.
As our economy crumbles, risk assets, like stocks, continue to rise as both the Fed and the Treasury are pumping markets. But credit is not a sustainable mechanism to keep prices high. 1/
As our economy crumbles, risk assets, like stocks, continue to rise as both the Fed and the Treasury are pumping markets. But credit is not a sustainable mechanism to keep prices high. 1/
Personal finance:
Consumer debt continues to skyrocket!
The combination of a late stage business cycle and many leveraging up even more to contend with diminished income during the coronavirus has created fragility in the credit situation for many. https://www.cnbc.com/2020/05/05/consumer-debt-hits-new-record-of-14point3-trillion.html
Consumer debt continues to skyrocket!
The combination of a late stage business cycle and many leveraging up even more to contend with diminished income during the coronavirus has created fragility in the credit situation for many. https://www.cnbc.com/2020/05/05/consumer-debt-hits-new-record-of-14point3-trillion.html
Many families cannot afford their rent or mortgage payment and have been skipping payments.
This has brought about a tidal wave of defaults and foreclosures may be next.
Such deflationary events have ripple effects throughout the economy, too.
3/ https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-
This has brought about a tidal wave of defaults and foreclosures may be next.
Such deflationary events have ripple effects throughout the economy, too.
3/ https://www.npr.org/2020/06/03/867856602/millions-of-americans-skipping-payments-as-tidal-wave-of-defaults-and-evictions-
But more important than paying for housing is being able to pay for the more immediate need of food.
And many are struggling there, too, as we face an enormous food security crisis -- with many families potentially going hungry in the weeks to come.
4/ https://thehill.com/blogs/congress-blog/politics/504802-america-faces-a-growing-food-insecurity-challenge-a-temporary
And many are struggling there, too, as we face an enormous food security crisis -- with many families potentially going hungry in the weeks to come.
4/ https://thehill.com/blogs/congress-blog/politics/504802-america-faces-a-growing-food-insecurity-challenge-a-temporary
Unemployment remains high, and the full impact has yet to be recorded as more shutdowns are under way and some are still having trouble filing for benefits. Many also won't be counted as they are 1099-MISC contractors rather than employees that qualify. 5/ https://finance.yahoo.com/news/predicted-surge-us-job-growth-232839962.html
Credit card debt remains persistently high, at $890B, and that's discounting for deferments and other financial assistance.
The situation is alarming and definitely speaks to a worsening socioeconomic equilibrium among the working and the wealthy.
6/ https://seekingalpha.com/article/4354864-credit-card-debt-delinquency-impact-analysis
The situation is alarming and definitely speaks to a worsening socioeconomic equilibrium among the working and the wealthy.
6/ https://seekingalpha.com/article/4354864-credit-card-debt-delinquency-impact-analysis
Corporate finance:
Meanwhile, we keep hearing about how stocks are doing so well from the banana republican regime. But stocks are supposed reflect the health of the economy and companies.
Are they? Not so much given the amount of leverage in play.
7/ https://www.bloomberg.com/news/articles/2020-06-11/u-s-business-debt-soars-by-record-on-bond-issuance-loans
Meanwhile, we keep hearing about how stocks are doing so well from the banana republican regime. But stocks are supposed reflect the health of the economy and companies.
Are they? Not so much given the amount of leverage in play.
7/ https://www.bloomberg.com/news/articles/2020-06-11/u-s-business-debt-soars-by-record-on-bond-issuance-loans
In fact, many believe stock finances are "frightening" to borrow the word used by Barron's latest article.
That they are pricing in perfection in earnings and future growth prospects.
That's a big problem since corporations buyback their stock w/debt. 8/ https://www.barrons.com/articles/stock-valuations-are-frightening-what-investors-should-do-now-51593689401
That they are pricing in perfection in earnings and future growth prospects.
That's a big problem since corporations buyback their stock w/debt. 8/ https://www.barrons.com/articles/stock-valuations-are-frightening-what-investors-should-do-now-51593689401
The feedback loop created, along with the enormous systemic leverage (corporations and consumers having enormous debt burdens) has induced the Fed to stimulate like there's no tomorrow.
This promises to debase the purchasing power of the dollar.
9/ https://www.bloomberg.com/opinion/articles/2020-06-11/powell-signals-fed-is-ready-to-let-asset-bubbles-inflate-again-kba982so
This promises to debase the purchasing power of the dollar.
9/ https://www.bloomberg.com/opinion/articles/2020-06-11/powell-signals-fed-is-ready-to-let-asset-bubbles-inflate-again-kba982so
Shifting back to consumer finance for a moment, a debased dollar means goods and services become more expensive more rapidly (aka inflation).
This is purposeful as one way to create higher asset prices is to do so by reducing the strength of the currency they are priced in. 10/
This is purposeful as one way to create higher asset prices is to do so by reducing the strength of the currency they are priced in. 10/
What that means is that not only are many out of work, and their finances tight, but the Fed stimulus (which only helps the few) will make life harder for the working families of America as each dollar doesn't go as far as the last one spent -- during a Depression.
11/
11/
Take that in the context that consumer spending is about 2/3rds of US economic activity, and that does mean we could see a sort of cascading impact of consumer spending reducing due to the dual impacts of COVID19's economic shutdowns and a maturing business cycle in decline.
12/
12/
Government finances:
Then there's the US government, whose balance sheet (the debt we owe) has expanded faster than ever before. Adding an inordinate amount of debt in an extremely short period of time.
We now have $25.74 trillion owed by future tax payers!
13/
Then there's the US government, whose balance sheet (the debt we owe) has expanded faster than ever before. Adding an inordinate amount of debt in an extremely short period of time.
We now have $25.74 trillion owed by future tax payers!
13/
While artificially low interest rates have helped to subdue the total amount of interest paid on the debt, (which is still a substantive part of deficit spending), the debt load is unsustainably high, and quite dangerous.
14/
14/
The only certainty at this point truly is uncertainty, as there's very little fiscal ammunition left to fight the Greatest Depression we may find ourselves struggling within. This as the majority of debt issued was to pay for bailouts for corporations who fired employees.
15/
15/
The same companies that took extraordinary risks buying back their own stocks to artificially boost their prices (and earnings), are those that begged for bailouts with taxpayer funds. By sending these funds the government encourages more bad behavior. 16/ https://edition.cnn.com/2020/03/24/business/bailout-buybacks-airlines-boeing/index.html
In fact, not only have the bailouts of corporations encouraged bad behavior, but they've fixed nothing -- and if anything reduced our government and central banks' ability to respond to the crisis that's building now.
17/ https://wolfstreet.com/2020/05/06/nothings-fixed-whats-behind-the-corporate-debt-bailout/
17/ https://wolfstreet.com/2020/05/06/nothings-fixed-whats-behind-the-corporate-debt-bailout/
Ultimately w/the combination of dangerously indebted families, corporations, governments (not just ours, but many) and central banks w/ record balance sheets-the capacity for stimulating ourselves out of the current malaise is quite low. Especially since stimulus isn't a vaccine.
